Fresenius kills Russian partnership as political tensions escalate

Building political tensions between Russia and the West are making it increasingly difficult for drugmakers in the region, prompting Germany's Fresenius to dump a partnership there. The announcement comes as other drug companies have reported their businesses are under pressure in the area.

Fresenius said in a statement Thursday that it and Sistema JSFC and Zenitco Finance Management "mutually agreed to terminate" the joint venture they forged in April. It said that "Changing political and regulatory circumstances in the region have made the closing of the joint venture more challenging than anticipated."

Fresenius, which has been selling drugs in Russia since 1994, said Thursday that it still is looking to expand in the region and that it and CJSC Binnopharm are looking at other options. Binnopharm is the Moscow-based drug manufacturing subsidiary of Sistema that would have made up the other part of the new venture.

The April deal was for Fresenius to combine its businesses in Russia and the Commonwealth of Independent States (CIS) with Binnopharm, a drugmaker with two manufacturing facilities that makes I.V. drugs, infusion solutions and active pharmaceutical ingredients. It had sales last year of about $104 million. Fresenius was going to own 51% of the venture. Russia's Zenitco Finance Management was getting a minority stake and Sistema the rest.

According to The Wall Street Journal, Fresenius took some heat from German lawmakers when it announced the deal last spring but indicated the timing was coincidental to political changes and that it believed it could make the venture work within frameworks set by lawmakers. The European Union has joined the U.S. in instigating sanctions against some Russian officials, individuals and businesses in response to Russia's annexation of Ukraine's Crimean peninsula and the Kremlin's involvement in eastern Ukraine. It was reported today that Russia had sent 32 tanks and 30 trucks into Ukraine with munitions and fighters, in the midst of a cease-fire there.

Some drugmakers based in the region are seeing their business drubbed by the turmoil. Slovenian generics maker Krka reported Thursday that the falling value of currencies in the region, particularly Russia's and Ukraine's, was putting pressure on its revenues. Its sales were off 13% in Ukraine and flat in Russia for the first 9 months of the year. Hungary's Gedeon Richter reported a couple of days ago that its revenues were off 50% in the third quarter because of the "war-like" conditions in the region.

Many western drugmakers have been targeting Russia as a growth market in recent years, but few have had much to say recently about how business is going there. In June, Abbott Laboratories ($ABT) announced it would buy the rapidly-growing Russian generics maker VeroPharm from local billionaire Roman Avdeev for $495 million. There was a recent report that Novartis ($NVS) had slowed construction of a new plant it is building near St. Petersburg, but a spokeswoman said the the interruption was for technical reasons and that everything was on schedule for a 2015 opening.

- here's the announcement
- read the WSJ story (sub. req.)
- more from Reuters
- still more
- read Bloomberg's take

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